Intrinsic value of Northrop Grumman - NOC

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$250.65

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$250.65

 
Intrinsic value

$579.25

 
Up/down potential

+131%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NOC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 43.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.17
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  24,508
  27,522
  30,707
  34,058
  37,573
  41,251
  45,092
  49,096
  53,265
  57,602
  62,112
  66,798
  71,668
  76,729
  81,989
  87,458
  93,145
  99,063
  105,222
  111,636
  118,319
  125,285
  132,550
  140,130
  148,043
  156,307
  164,942
  173,967
  183,404
  193,274
  203,603
Variable operating expenses, $m
 
  23,764
  26,369
  29,111
  31,987
  34,997
  38,139
  41,416
  44,827
  48,375
  52,065
  54,654
  58,639
  62,780
  67,084
  71,558
  76,212
  81,053
  86,093
  91,341
  96,808
  102,508
  108,452
  114,654
  121,129
  127,891
  134,955
  142,340
  150,061
  158,137
  166,588
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  21,315
  23,764
  26,369
  29,111
  31,987
  34,997
  38,139
  41,416
  44,827
  48,375
  52,065
  54,654
  58,639
  62,780
  67,084
  71,558
  76,212
  81,053
  86,093
  91,341
  96,808
  102,508
  108,452
  114,654
  121,129
  127,891
  134,955
  142,340
  150,061
  158,137
  166,588
Operating income, $m
  3,193
  3,759
  4,337
  4,947
  5,586
  6,255
  6,953
  7,681
  8,439
  9,227
  10,047
  12,144
  13,029
  13,949
  14,906
  15,900
  16,934
  18,010
  19,129
  20,295
  21,510
  22,777
  24,097
  25,476
  26,914
  28,417
  29,986
  31,627
  33,343
  35,137
  37,015
EBITDA, $m
  3,649
  5,128
  5,722
  6,346
  7,001
  7,687
  8,402
  9,148
  9,925
  10,733
  11,573
  12,447
  13,354
  14,297
  15,277
  16,296
  17,356
  18,459
  19,606
  20,801
  22,047
  23,345
  24,698
  26,111
  27,585
  29,125
  30,734
  32,416
  34,174
  36,013
  37,938
Interest expense (income), $m
  0
  247
  335
  427
  525
  627
  734
  845
  962
  1,083
  1,209
  1,340
  1,476
  1,618
  1,765
  1,918
  2,077
  2,242
  2,414
  2,593
  2,780
  2,974
  3,176
  3,388
  3,608
  3,838
  4,078
  4,329
  4,591
  4,866
  5,153
Earnings before tax, $m
  2,923
  3,512
  4,003
  4,520
  5,061
  5,628
  6,219
  6,835
  7,477
  8,144
  8,838
  10,804
  11,553
  12,332
  13,141
  13,982
  14,857
  15,767
  16,715
  17,702
  18,731
  19,803
  20,921
  22,088
  23,306
  24,579
  25,908
  27,298
  28,751
  30,272
  31,862
Tax expense, $m
  723
  948
  1,081
  1,220
  1,367
  1,519
  1,679
  1,846
  2,019
  2,199
  2,386
  2,917
  3,119
  3,330
  3,548
  3,775
  4,011
  4,257
  4,513
  4,780
  5,057
  5,347
  5,649
  5,964
  6,293
  6,636
  6,995
  7,370
  7,763
  8,173
  8,603
Net income, $m
  2,200
  2,563
  2,922
  3,299
  3,695
  4,108
  4,540
  4,990
  5,458
  5,945
  6,452
  7,887
  8,434
  9,002
  9,593
  10,207
  10,846
  11,510
  12,202
  12,923
  13,673
  14,456
  15,272
  16,124
  17,014
  17,942
  18,913
  19,928
  20,988
  22,098
  23,259

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,541
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  25,614
  25,916
  28,914
  32,070
  35,380
  38,843
  42,460
  46,230
  50,156
  54,239
  58,485
  62,898
  67,484
  72,250
  77,203
  82,352
  87,708
  93,279
  99,079
  105,119
  111,411
  117,970
  124,811
  131,949
  139,400
  147,182
  155,312
  163,811
  172,696
  181,991
  191,716
Adjusted assets (=assets-cash), $m
  23,073
  25,916
  28,914
  32,070
  35,380
  38,843
  42,460
  46,230
  50,156
  54,239
  58,485
  62,898
  67,484
  72,250
  77,203
  82,352
  87,708
  93,279
  99,079
  105,119
  111,411
  117,970
  124,811
  131,949
  139,400
  147,182
  155,312
  163,811
  172,696
  181,991
  191,716
Revenue / Adjusted assets
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
  1.062
Average production assets, $m
  3,326
  3,743
  4,176
  4,632
  5,110
  5,610
  6,133
  6,677
  7,244
  7,834
  8,447
  9,085
  9,747
  10,435
  11,151
  11,894
  12,668
  13,473
  14,310
  15,182
  16,091
  17,039
  18,027
  19,058
  20,134
  21,258
  22,432
  23,659
  24,943
  26,285
  27,690
Working capital, $m
  1,226
  -1,486
  -1,658
  -1,839
  -2,029
  -2,228
  -2,435
  -2,651
  -2,876
  -3,111
  -3,354
  -3,607
  -3,870
  -4,143
  -4,427
  -4,723
  -5,030
  -5,349
  -5,682
  -6,028
  -6,389
  -6,765
  -7,158
  -7,567
  -7,994
  -8,441
  -8,907
  -9,394
  -9,904
  -10,437
  -10,995
Total debt, $m
  7,058
  9,561
  12,205
  14,988
  17,908
  20,963
  24,152
  27,478
  30,940
  34,542
  38,287
  42,179
  46,224
  50,427
  54,796
  59,338
  64,061
  68,975
  74,091
  79,418
  84,968
  90,753
  96,787
  103,082
  109,654
  116,517
  123,689
  131,184
  139,021
  147,219
  155,797
Total liabilities, $m
  20,355
  22,858
  25,502
  28,285
  31,205
  34,260
  37,449
  40,775
  44,237
  47,839
  51,584
  55,476
  59,521
  63,724
  68,093
  72,635
  77,358
  82,272
  87,388
  92,715
  98,265
  104,050
  110,084
  116,379
  122,951
  129,814
  136,986
  144,481
  152,318
  160,516
  169,094
Total equity, $m
  5,259
  3,058
  3,412
  3,784
  4,175
  4,583
  5,010
  5,455
  5,918
  6,400
  6,901
  7,422
  7,963
  8,525
  9,110
  9,718
  10,349
  11,007
  11,691
  12,404
  13,147
  13,921
  14,728
  15,570
  16,449
  17,367
  18,327
  19,330
  20,378
  21,475
  22,623
Total liabilities and equity, $m
  25,614
  25,916
  28,914
  32,069
  35,380
  38,843
  42,459
  46,230
  50,155
  54,239
  58,485
  62,898
  67,484
  72,249
  77,203
  82,353
  87,707
  93,279
  99,079
  105,119
  111,412
  117,971
  124,812
  131,949
  139,400
  147,181
  155,313
  163,811
  172,696
  181,991
  191,717
Debt-to-equity ratio
  1.342
  3.130
  3.580
  3.960
  4.290
  4.570
  4.820
  5.040
  5.230
  5.400
  5.550
  5.680
  5.800
  5.910
  6.010
  6.110
  6.190
  6.270
  6.340
  6.400
  6.460
  6.520
  6.570
  6.620
  6.670
  6.710
  6.750
  6.790
  6.820
  6.860
  6.890
Adjusted equity ratio
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,200
  2,563
  2,922
  3,299
  3,695
  4,108
  4,540
  4,990
  5,458
  5,945
  6,452
  7,887
  8,434
  9,002
  9,593
  10,207
  10,846
  11,510
  12,202
  12,923
  13,673
  14,456
  15,272
  16,124
  17,014
  17,942
  18,913
  19,928
  20,988
  22,098
  23,259
Depreciation, amort., depletion, $m
  456
  1,370
  1,384
  1,399
  1,415
  1,432
  1,449
  1,468
  1,486
  1,506
  1,527
  303
  325
  348
  372
  396
  422
  449
  477
  506
  536
  568
  601
  635
  671
  709
  748
  789
  831
  876
  923
Funds from operations, $m
  2,841
  3,933
  4,306
  4,699
  5,110
  5,540
  5,989
  6,457
  6,945
  7,451
  7,978
  8,190
  8,759
  9,350
  9,964
  10,603
  11,268
  11,959
  12,679
  13,429
  14,210
  15,024
  15,873
  16,760
  17,685
  18,651
  19,661
  20,716
  21,820
  22,974
  24,182
Change in working capital, $m
  28
  -163
  -172
  -181
  -190
  -199
  -207
  -216
  -225
  -234
  -243
  -253
  -263
  -273
  -284
  -295
  -307
  -320
  -333
  -346
  -361
  -376
  -392
  -409
  -427
  -446
  -466
  -487
  -510
  -533
  -558
Cash from operations, $m
  2,813
  4,358
  4,478
  4,880
  5,300
  5,739
  6,197
  6,674
  7,170
  7,686
  8,222
  8,443
  9,022
  9,623
  10,248
  10,899
  11,575
  12,279
  13,012
  13,775
  14,571
  15,400
  16,266
  17,169
  18,112
  19,097
  20,127
  21,204
  22,329
  23,507
  24,740
Maintenance CAPEX, $m
  0
  -111
  -125
  -139
  -154
  -170
  -187
  -204
  -223
  -241
  -261
  -282
  -303
  -325
  -348
  -372
  -396
  -422
  -449
  -477
  -506
  -536
  -568
  -601
  -635
  -671
  -709
  -748
  -789
  -831
  -876
New CAPEX, $m
  -920
  -417
  -433
  -456
  -478
  -500
  -522
  -545
  -567
  -590
  -613
  -637
  -662
  -688
  -715
  -744
  -773
  -805
  -838
  -872
  -909
  -947
  -988
  -1,031
  -1,076
  -1,124
  -1,174
  -1,227
  -1,283
  -1,342
  -1,405
Cash from investing activities, $m
  -805
  -528
  -558
  -595
  -632
  -670
  -709
  -749
  -790
  -831
  -874
  -919
  -965
  -1,013
  -1,063
  -1,116
  -1,169
  -1,227
  -1,287
  -1,349
  -1,415
  -1,483
  -1,556
  -1,632
  -1,711
  -1,795
  -1,883
  -1,975
  -2,072
  -2,173
  -2,281
Free cash flow, $m
  2,008
  3,830
  3,920
  4,285
  4,667
  5,068
  5,487
  5,925
  6,380
  6,854
  7,347
  7,524
  8,056
  8,610
  9,185
  9,783
  10,405
  11,052
  11,725
  12,426
  13,156
  13,916
  14,710
  15,537
  16,401
  17,302
  18,244
  19,228
  20,257
  21,334
  22,459
Issuance/(repayment) of debt, $m
  563
  2,503
  2,645
  2,783
  2,920
  3,055
  3,190
  3,325
  3,462
  3,602
  3,745
  3,892
  4,045
  4,203
  4,369
  4,542
  4,723
  4,914
  5,115
  5,327
  5,550
  5,785
  6,034
  6,296
  6,572
  6,863
  7,171
  7,495
  7,837
  8,198
  8,578
Issuance/(repurchase) of shares, $m
  -1,547
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,146
  2,503
  2,645
  2,783
  2,920
  3,055
  3,190
  3,325
  3,462
  3,602
  3,745
  3,892
  4,045
  4,203
  4,369
  4,542
  4,723
  4,914
  5,115
  5,327
  5,550
  5,785
  6,034
  6,296
  6,572
  6,863
  7,171
  7,495
  7,837
  8,198
  8,578
Total cash flow (excl. dividends), $m
  862
  6,333
  6,565
  7,068
  7,587
  8,123
  8,677
  9,250
  9,843
  10,456
  11,092
  11,416
  12,101
  12,813
  13,554
  14,325
  15,128
  15,966
  16,840
  17,753
  18,706
  19,702
  20,743
  21,833
  22,973
  24,166
  25,415
  26,724
  28,095
  29,531
  31,037
Retained Cash Flow (-), $m
  263
  -340
  -354
  -372
  -391
  -409
  -427
  -445
  -463
  -482
  -501
  -521
  -541
  -562
  -584
  -608
  -632
  -657
  -684
  -713
  -743
  -774
  -807
  -842
  -879
  -918
  -959
  -1,003
  -1,049
  -1,097
  -1,148
Prev. year cash balance distribution, $m
 
  2,541
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,534
  6,211
  6,695
  7,196
  7,714
  8,250
  8,805
  9,379
  9,974
  10,591
  10,895
  11,560
  12,251
  12,969
  13,717
  14,497
  15,309
  16,156
  17,040
  17,963
  18,928
  19,936
  20,990
  22,093
  23,248
  24,456
  25,721
  27,046
  28,435
  29,889
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
 
  8,151
  5,641
  5,754
  5,822
  5,843
  5,817
  5,742
  5,619
  5,451
  5,240
  4,840
  4,571
  4,272
  3,950
  3,611
  3,262
  2,910
  2,562
  2,225
  1,904
  1,604
  1,330
  1,085
  868
  682
  526
  396
  293
  211
  148
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Northrop Grumman Corporation, a security company, provides systems, products, and solutions to government and commercial customers in the areas of aerospace, mission systems, and technology services worldwide. Its Aerospace Systems segment designs, develops, integrates, and produces manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics, and other systems/subsystems. This segment sells its products primarily to Department of Defense (DoD) and other government agencies for use in various areas, including intelligence, surveillance, and reconnaissance; strike operations; communications; earth observation; and space science and exploration. The company’s Mission Systems segment provides mission solutions and multifunction systems, including C4ISR systems; radar, electro-optical/infrared, and acoustic sensors; electronic warfare systems; cyber solutions; space systems; intelligence processing systems; air and missile defense integration; navigation; and shipboard missile and encapsulated payload launch systems for DoD, intelligence community, international, federal, civil, and commercial customers. Its Technology Services segment provides software and system sustainment, advanced training, and integrated logistics support solutions, as well as engages in modernization of platforms and associated subsystems. The company was founded in 1939 and is based in Falls Church, Virginia.

FINANCIAL RATIOS  of  Northrop Grumman (NOC)

Valuation Ratios
P/E Ratio 19.9
Price to Sales 1.8
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 15.6
Price to Free Cash Flow 23.2
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 95.3%
Cap. Spend. - 3 Yr. Gr. Rate 20.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 134.2%
Total Debt to Equity 134.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 8.1%
Return On Total Capital 18.2%
Ret/ On T. Cap. - 3 Yr. Avg. 16%
Return On Equity 40.8%
Return On Equity - 3 Yr. Avg. 31.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 23.6%
Gross Margin - 3 Yr. Avg. 23.6%
EBITDA Margin 13.8%
EBITDA Margin - 3 Yr. Avg. 13.9%
Operating Margin 13%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 12%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 27.7%
Payout Ratio 29.1%

NOC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NOC stock intrinsic value calculation we used $24508 million for the last fiscal year's total revenue generated by Northrop Grumman. The default revenue input number comes from 2016 income statement of Northrop Grumman. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NOC stock valuation model: a) initial revenue growth rate of 12.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.7%, whose default value for NOC is calculated based on our internal credit rating of Northrop Grumman, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Northrop Grumman.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NOC stock the variable cost ratio is equal to 86.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NOC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Northrop Grumman.

Corporate tax rate of 27% is the nominal tax rate for Northrop Grumman. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NOC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NOC are equal to 13.6%.

Life of production assets of 34.6 years is the average useful life of capital assets used in Northrop Grumman operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NOC is equal to -5.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5259 million for Northrop Grumman - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 173.688 million for Northrop Grumman is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Northrop Grumman at the current share price and the inputted number of shares is $43.5 billion.


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COMPANY NEWS

▶ Northrop Grumman nets Hawkeye contract; to hire nearly 200 workers   [May-24-17 11:35AM  American City Business Journals]
▶ These stocks outperform during U.S. Saudi arms deals   [May-23-17 03:50PM  CNBC Videos]
▶ Defense in the Trader Blitz   [May-22-17 01:26PM  CNBC Videos]
▶ Defense contractors await Trump's trip   [May-19-17 07:49AM  CNBC Videos]
▶ Northrop Grumman to Webcast Annual Shareholders Meeting   [May-12-17 01:30PM  GlobeNewswire]
▶ Nvidia, Wayfair Touted On Earnings, Yelp Panned, Northrop A Buy   [May-10-17 04:06PM  Investor's Business Daily]
▶ Northrop Grumman lands $11M Advanced Hawkeye work for Central Florida   [May-05-17 12:10PM  American City Business Journals]
▶ Northrop Grumman CEO sees readiness as Pentagons 'first priority   [12:00PM  American City Business Journals]
▶ A Blitz filled with big names   [01:35PM  CNBC Videos]
▶ Defense Stocks In Focus   [10:50AM  Zacks]
▶ The schoolchildren trained in cyber warfare   [07:37AM  Reuters Videos]
▶ Northrop Grumman tops Street 1Q forecasts   [06:40AM  Associated Press]
▶ Earnings News May Put These 3 Stocks In Buy Zone: Investing Action Plan   [Apr-25-17 12:42PM  Investor's Business Daily]
▶ Incoming! Defense Wary after LMT's Miss   [09:17AM  Investopedia]
▶ 4 Defense Stocks In Or Near Buy Range Before Earnings Come Out   [Apr-24-17 04:09PM  Investor's Business Daily]
▶ Top Research Reports for Today: MSFT, BLK, NOC   [Apr-13-17 02:49PM  Zacks]
▶ The $200,000 Police Bomb Robot   [05:29PM  Bloomberg]
▶ When War Is a Win-Win Scenario   [03:00PM  TheStreet.com]
▶ Industry roundup: Lockheed Martin, Northrop Grumman, Raytheon net $1B in contracts   [Apr-10-17 01:00PM  American City Business Journals]
▶ Defense stocks rally following US airstrikes in Syria   [Apr-07-17 12:54PM  CNBC Videos]
▶ Would You Let A Robot Do These Jobs?   [12:36PM  Benzinga]
▶ Northrop Grumman CEO pay package increases 26 percent on pension gains   [10:44AM  American City Business Journals]
▶ What To Expect From The Air Force's Secret New Bomber   [04:11PM  Investor's Business Daily]
▶ Northrop Grumman doing $11M worth of local aircraft work   [12:40PM  American City Business Journals]
▶ Claire Shipman, Katty Kay headline Confidence Code Girls Conference   [11:55AM  American City Business Journals]
▶ 11 Fastest US Air Force Fighter Planes   [Mar-21-17 09:10PM  at Insider Monkey]
Stock chart of NOC Financial statements of NOC Annual reports of NOC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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